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Petitioner: BANK AL-HABIB LIMITED VS Respondent: Messrs KHALID JAVAID AND BROTHERS and 8 others
Court Name: Sindh High Court Judge(s): Aziz-ur-Rehman Title:BANK AL-HABIB LIMITED vs Messrs KHALID JAVAID AND BROTHERS and 8
others Case No.: Suit No, B-23 of 2008 Date of Judgment:2015-05-07 Reported As: 2016 CLD 1493 Result: Suit decreed Judgment ORDER C.M.A. NO. 6129 OF 2008 AZIZ-UR-REHMAN, J.---The Plaintiff Bank has filed the above suit against defendants under section 9 of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [hereinafter referred to as F.I.O., 2001] for recovery of Rs,59,570,004.06 and cost of funds with the following prayers:- [i] For judgment and decree against the defendants jointly and severally in the sum of Rs, 59,570,004.06 together with 'markup at 0.046 paisas per thousand per day from the date of institution of the suit until judgment and decree and further 'mark-up' at the same rate until realization of the entire decretal amount. [ii] For sale of the stocks/goods pledged/charged to the Plaintiff as security as specified in Stock Reports situated in the godowns of Defendant No,1 at Quality Godown, Multan and Riaz Cotton Factory, BCG Chowk, Milian. [iii] for a final mortgage decree for sale of Property bearing Khewat No,I36, Khatoony No,263, Khasra No,225 [area 8-0-0], 226 [area 8-0-0], 227 [area 8-0-0], 228 [area 8-0-0], 229 [area 8-8-0], 232 [area 7-16-0], 233 [area 8-18-0], 234 [area 8-18-0], 235 [area 8-18-0], 236 [area 8-0-0], 260 [area 8-18-0], 261 [area 5-0-0], 262 [area 1-17-0], and 263 [area 7-7-0], total area 106 kanals, located at Mauza Tarra, Tehsil and district Lahore and payment of the sale proceeds; towards the claim in suit. [iv] For cost of the funds at the rate certified by the State Bank of Pakistan. [v] Costs.
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[vi] For such further and other relief or reliefs as this Honourable Court may deem, fit and proper in the circumstances of the case. 2. Precisely, the relevant stated facts are as follows:- 3. The plaintiff is a Banking Company registered under the Companies Ordinance, 1984 having its' Principal Office at Mackinnons Building, I.I. Chundrigar Road, Karachi, and carrying on its' business of banking as defined under section 2[a][i], inter alia, at its' Cloth Market Branch, M.A. Jinnah Road, Karachi. 4. The Defendant No,1 is a Partnership firm and has been sued in its capacity as the principal customer. Defendants Nos.2 to 8 besides partners of Defendant No,1 are guarantors and Defendant No,9 is a mortgagor, all fell within the meaning of section of 2[c] of F.I.O., 2001, and are thus customers. According to the Plaintiff Bank, at the request of Defendants, the Plaintiff Bank extended finance facility in the nature of FIM facility[ies] from time to time including FIM facility of Rs,183,522,849 in June, 2005. While, an amount of Rs,148,500,000/- on account of the aforesaid facility, was outstanding, then at the request of Defendant No,1, the Plaintiff Bank, established Letter of Credits for the import of 15,000 metric tons of fertilizer of Russian origin of the value of US $ 4,410,000.00 equivalent to Pak Rs,263,629,800/- in favour of foreign supplier against security, inter alia, against the pledge of the imported stock. In this regard, two letters of Defendant No,1 dated 16th August, 2005 and 19th August 2005, Letter of Credit dated 20.08.2005 and Agreement of Finance on 'mark-up' basis dated 24th September, 2009 are available on record. 5. For availing of the aforesaid facility, Defendant No,1 duly signed, executed and delivered to the Plaintiff Bank an Agreement for Financing on 'mark-up' basis dated 24.09.2005 [Annexure B to the plaint]. Per the said Agreement for Finance, the Defendant No,1, expressly agreed to pay the Plaintiff Bank, the agreed 'purchase price' in the sum of Rs,300,488,000.00 on or before 23.9.2006. The three debits entries against PAD of the L/C are as follows:- [i] Rs,31,698,900 on 24.9.2005 [ii] Rs,31,699,080 on 28.9.2005 [iii] Rs,174,344,940 on 30.9.2005 6. The total of the aforesaid amount comes to Rs,237,742,920/- after receipt of payment of margin. Towards acknowledgment of the liability and as a security for the repayment of the facility so granted to and availed, the Defendant No,1 signed, executed and delivered Demand Promissory Note dated 24.9.2005 in the sum of Rs,300,488,000/- [Annexure 'B-1' to the plaint], letters of pledge of the Stocks all dated 24.9.2005. Apart from the above documents, duly signed, executed and delivered by the Defendant No,1 to the Plaintiff Bank. The Defendants Nos.2, 5 and 6 also signed, executed and delivered to the Plaintiff Bank their continuing personal guarantees [Annexure 'B-6 to 'B-8' to the Plaint]. On arrival of the imported consignment of 15,000 metric tons of MAP, the same was stored under the pledge of the Plaintiff Bank, at places as mentioned below:- [i] 4342 M/Tons at Plot No,185/A, Haroonabad, SITE, Karachi. [ii] 4691 M/Tons at Quality Godown, Multan. [Hi] 2727 M/Tons of Riaz Cotton Factory BCG Chowk, Multan and [iv] 3240 M/Tons at Tobacoo Godown Satghara Chowk, Okara. The above stock/goods at all relevant times, of course, remained as continuing security for and towards the repayment of the finances extended by the Plaintiff to Defendant No,1. No doubt, the facility so extended was fully availed by Defendant No,1. The Defendant No,1, as per its request, cleared the pledged stocks, stored in the Godowns at Karachi and Okara and partly adjusted from the sale proceeds thereof its outstanding liability, leaving behind a balance of Rs,106,127,000.00 as outstanding amount. 7. Upon the request of Defendant No,1, for renewal/extension of time, the aforesaid facility was renewed in terms of Agreement for Financing on 'markup basis dated 21.9.2006 [Annexure 'D' to the
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plaint] in favour of Defendant No,1. The 'purchase price' mutually settled between the Plaintiff Bank and Defendant No,1, under the aforesaid Finance Agreement of 21st September, 2006, is Rs,123,107,500.00. For and to secure the repayment of the purchase price, the Defendant No,1, also signed and executed Demand Promissory Note dated 21.9.2006 in the sum of Rs,123,107,500/- [Annexure 'D-1' to the plaint] and letter of pledge dated 21.9.2006. Apart from the aforesaid documents, the Defendants Nos.1, 2 to 8 also signed, executed and delivered their continuing personal guarantees for securing and ensuring the repayment of the outstanding amount of 'financial facility' extended to and availed by the Defendant No,1. Notwithstanding, the execution of aforesaid documents and commitments, the Defendants, however, failed and/or avoided to liquidate their outstanding liabilities. 8. Later on, manifestly due to the Defendant No,1 's in-ability to adjust/liquidate the outstanding liability, the Defendant No,9, at the instance of Defendant No,1 requested the Plaintiff Bank for the grant of further time for repayment of the dues, however, only after the Defendant No,9 offered 'additional security' in its capacity as a mortgagor. The Defendant No,9 thus deposited the 'original title documents' of its immovable property located at Mouza Tara, Tehsil and District Lahore,. Measuring 106 Kanals, with intention of creating an equitable mortgage in favour of the Plaintiff Bank as security for the repayment of the outstanding. The 'original title document' i.e, registered Beynama of 08.3.2004, with intention to create mortgage thereon was thus deposited [See annexure 'E' to the plaint]. The 'title documents' of the aforesaid property having already been deposited is still lying and is in the custody of the Plaintiff Bank. The Defendants despite, fully availing the financial facilitypes] by the Defendant No,1, and notwithstanding of making some repayments, nonetheless, despite 'repeated requests and reminders, failed and/or avoided to liquidate the balance outstanding amounts i.e, in the sum of Rs,59,570,004.06 as on 13.03.2008. The 'break-up' of the amount of finance availed, the amounts repaid and the balance outstanding amounts is as follows:- S.No,Description Amount The amount of finance availed by the Defendant No,) from the PlaintiffRs,237,742,920.00 Amount P aid by the Defendant No,1 upto.Rs,181,399,920.00 The amount of finance and other amount relating to the finance payable by the Defendants to the Plaintiff Bank upto the date of institution of the suit [including amount of `mark-up' Rs, 3,227,004.06 with effect from 1.10.2007 to 13.3.2009]Rs, 59,570,004,06 9. For repayment of the aforesaid outstanding amounts, legal notices were also issued to the Defendants Nos.1 to 9, but all the defendants obviously in their own wisdom failed and/or neglected to repay the outstanding dues to the Plaintiff Bank. Moreover, the Defendant No,1, also failed to
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allow inspection of the pledged stocks lying in Multan. The Defendant No,9, in its capacity as a mortgagor, was also issued a legal notice dated 14.3.2008, demanding thereby, the repayment of the outstanding amounts. All the Defendants including the Defendant No,9, however, failed to liquidate the outstanding amounts. 10. Upon filing of the above suit 'inter alia' for recovery of the outstanding amounts of Rs,59,570,004.06, when the same came-up before the Court on 26.3.2008 for orders on C.M.A. No,2439 of 2008, and C.M.A. No,2440 of 2008 then the following order was passed:- "1. For Orders on CMA No: 2439 of 2008 2. For Orders on CMA No: 2440 of 2008 26.03.2008 Mr. Akbar H. Mirza, Advocate along with Mr. Murtaza Advocate for the Plaintiff. 'Allowed. That the Plaintiff's Bank had extended finance facility in the name of Defendant No,1 including FIM facility against the pledged stocks lying at Multan. He further contended that the defendant No,) and other defendants in collusion with each other always evaded and prevented the representatives/officials of the Plaintiff Bank from carrying out the inspection of pledged stock with ulterior motives, hence there is a strong apprehension that they will remove the pledged stocks from two godowns. Notice to the defendants Nos.1 to 8 and in the meanwhile, they are restrained not to transfer/alienate, parting with possession or otherwise, encumbering, charging, disposing of the pledged stocks lying at Riaz Cotton Factory BCG Chowk Multan and Quality down. Nazir of this Court is also appointed as receiver w inspect and prepare inventory of pledged stocks lying at the above godown with the assistance of a reputed surveyor. Tentatively the fees of the Nazir is fixed at Rs, 50,000/- (Rupees Fifty Thousand Only), [Underlining is mine]. 11. Later on, process under section 9151 of the 2001, was issued to the Defendants Nos.1 to 9. Upon service and in response thereto, Defendants Nos.1 to 3 and 5 to 8 and Defendant No,9 filed their 'Leave to Defend Applications' bearing C.M.A. Nos.6128/2008 and 6129/2008 respectively, under section 10 of F.I.O., 2001, On 14.12.2010, in view of the admissions by Defendants Nos.1 to 3 and 5 to 8, by consent of the learned counsel for the parties, an 'INTERIM DECREE' in the sum of Rs,42,584,848/- was passed. The relevant operative part of order dated 14.12.2010 reads as follows:- "Learned counsel for Defendants Nos.] to 3 and 5 to 8 submits that through this suit plaintiff has prayed for a decree in the sum of Rs,59,570,004.06 plus cost of funds from the date of default till its realization and cost of the suit. Learned counsel for Defendants Nos.1 to 3 and 5 to 8 submits that according to the working of defendants an amount of Rs, 42,584,848/- is payable by the defendants to the plaintiff He says that remaining amount which has been claimed in the suit is disputed by the defendants and that can be resolved by appointing a Chartered Accountant as Commissioner to examine the accounts of parties and determine the liability of the defendants. Parties counsel present in Court jointly submit that an interim decree in terms of section 11 of Financial Institutions [Recovery of Finances] Ordinance, 2001, be passed in the sum of Rs,4,25,84,848/- against Defendant Nos.1 to 8 and for remaining amount a Chartered Accountant, namely M/s. Haroon Zakaria & Co., Room No,211, 2nd Floor, Plot No,5, Progressive Plaza, Civil Line Quarters, Karachi, be appointed Commissioner to probe into the account of the parties and determine the liability of the defendants. 'Accordingly with the consent of learned counsel for the parties interim decree in the sum of Rs, 42,584,848/- is passed. With regard to cost of funds and other relief they will be decided at the time of conclusion of trial. M/s. Haroon Zakaria & Co., Room No,211, 2nd Floor, Plot No,5, Progressive Plaza, Civil Line Quarters, Karachi, is appointed Commissioner to enquire into the accounts of the plaintiffs and defendants and after examining the same determine the liability of the defendants. The Chartered Accountant while determining the liability of the defendants also examine as to whether any markup over markup has been charged by the bank or not. Such exercise may be completed bji the Chartered Accountant within two months from the receipt of this order. Time for commission
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shall commence from 10th January 2011. Parties agree for a tentative fee of the Chartered Accountant to Rs,1,00,000/- which shall be equally borne by the parties for placing their documents for determination of defendants liability. 'Leave to Defend Application [C.M.A. No,6128 of 2008] filed by Defendants Nos.I to 3 and 5 to 8 is disposed of in the above terms. However, Leave to Defend Application [C.M.A. No,6129 of 2008] shall be taken-up once the report from the Chartered Accountant is received. ' [Underlining is mine]. 12. Pursuant to and in compliance with the aforesaid order of 14.12.2010, Messrs Haroon Zakaria & Co., Chartered Accountants, filed their report dated 23.5.2011. Before the Chartered Accountants, the main contention of the Defendants was to the effect, that 'mark-up' on renewed/rollover amounts could not be charged. The Chartered Accountants, nonetheless, in view of definition of 'obligation' as given in section 2[e]of F.I.0 2001, as well as upon perusal of section 3[2] of F.I.O., 2001, however, reached the conclusion that 'rollover finance' is basically an extension of time and thus is a part of 'obligation' as such 'mark-up' on it could be charged as per usual 'Banking Practice'. The Chartered Accountants, in view of this position, finally, concluded that the Plaintiff Bank besides, being within its' legal rights, is entitled to charge 'mark-up' as per banking practice. Per Chartered Accountants Report of 20th May, 2011, upon expiry of extended period(s) under the Finance Agreements on 'mark-up' basis, 'costs of fund' can only be charged in the 'shape of mark-up' as Certified by State Bank of Pakistan [for short SBP] from time to time. The Chartered Accountants, indeed, after a comprehensive drill of calculations and minute perusal and scrutinies of various financial documents signed, executed by the Defendants in favour of the Plaintiff Bank including Finance Agreements, Statement of Accounts, Facility letters and all other relevant Renewal Letters, concluded that the Plaintiff Bank is only entitled for 'mark-up' in the sum of Rs,27,626,119/- as against Rs,32,261,556/- charged by the Plaintiff Bank. Per calculations of the Chartered Accountants, the Bank was found entitled only to receive an amount of Rs,54,934,567/- instead of suit's amount in the sum of Rs .59,570,004/06. 13. The Defendants, nonetheless, filed their objections on the report of Chartered Accountants dated 20.5.2011. The Plaintiff Bank in opposition thereto had also filed its reply. Lastly, on 06.04.2015, the 'Leave to Defend Application' bearing C.M.A. No,6129/2008 filed by Defendant No,9, came-up before the Court i.e, in view of order dated 14th December, 2010. I heard Mr. Abdul Sattar Lakhani, learned counsel for Defendants and Mr. Ghulam Murtaza, learned counsel for the Plaintiff Bank and with their valuable assistance also scanned the available record before me including the Chartered Accountants' Report dated 20th May, 2011. 14. Mr. Abdul Sattar Lakhani, learned counsel for Defendants vehemently argued that Messrs Haroon Zakaria & Co., Chartered Accountants, appointed as Commissioner, under order dated 14.12.2010, passed in the above suit, had clearly acted beyond their mandate and scope of work. According to Mr. Lakhani, the Chartered Accountants have un-necessarily, of course, on their own, embarked upon the calculations of the 'cost of funds', as the Chartered Accountants, under the mandate given to them, are/were obliged only to determine the 'principal amount' and 'mark-up' payable. Besides, the finding of the Chartered Accountants that no 'mark-up' over 'mark-up' has been charged, per learned counsel, is wrong on the face of record. Mr. Lakhani, learned counsel for the Defendants, forcefully contended that the Plaintiff Bank could not charge 'mark-up' over 'mark- up' on the Rescheduled outstanding amounts even under the fresh finance agreements including the last Finance Agreement of 21st September, 2006 [Annexure 'D' to the Plaint], as no disbursement has been made by the Plaintiff Bank in favour of Defendant No,1 partnership firm under the Finance Agreement of 21st September, 2006. Per Mr. Lakhani, the rescheduled/renewed amounts under the aforesaid, last Finance Agreement [annexure 'D' to the plaint] is not recoverable under the law inter alia for want of the actual disbursement. Per learned counsel for defendants, no doubt, rollover,
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rescheduling, renewal and restructuring was made 'at the request of Defendants' but in no event any additional amount and/or any further amount, on the outstanding 'debt' payable under the earlier first finance agreement i.e, Finance Agreement of 24th September, 2005, in the case in hand [Annexure 'B' to the Plaint], can be charged or recovered by the Plaintiff Bank. In view of this position, the findings of the Chartered Accountants that 'mark-up' could be charged on rescheduled amount, per Mr. Lakhani, is not only wrong, but also contrary to law/State Bank' Circulars. Moreover, the same is also contrary to the decisions of Courts much-less to the extent that no 'markup' over 'mark-up' can legally be charged. Besides, the charging of mark-up on rescheduled amounts is 'haram' and/or prohibited under BPD's Circulars 13 and 32 of 1984. 15. Also, Mr. Lakhani contended, that the conclusion of Chartered Accountants to the extent that the Plaintiff Bank is entitled to receive Rs,54,934,567/- instead of Rs,59,570,004/06 is also wrong as the Plaintiff Bank, cannot charge any 'mark-up' over 'mark-up' on the rescheduled amounts. The mark- up claimed and/or charged by the Plaintiff,. Under the last agreement for financing on 'mark-up' basis [Annexure 'D' to the plaint] despite the fact it was signed and executed by the Defendant No,1, nonetheless, is illegal. According to Mr. Lakhani, notwithstanding the execution of the 'fresh finance agreements', the Plaintiff Bank, however, is not entitled to claim and/or charge any 'mark-up' on the outstanding amounts. 16. No doubt, on 21.9.2006, an amount of Rs,106,127,000/- only stood outstanding [i.e, debit balance] in the Statement of Accounts at Page 319 of the Plaint but such outstanding amount, under law cannot be made as 'principle amount' that is to say as 'sale price' in the fresh finance agreement for financing of 21.9.2006 [annexure 'D' to the plaint]. The 'purchase price' though per the aforesaid agreement for financing, has been mutually fixed at Rs,123,107,500/- but the same being 'mark-up' over 'mark-up' is not recoverable from the Defendant. This last agreement for finance duly signed and extended by Defendant No,1, per learned counsel, is against principle of Islamic Law. Per Mr. Lakhani, since, under the agreement for financing on 'mark-up' basis of 21 September, 2006, no fresh disbursement of the 'sale price' has been made, as such under law, the Defendants or any of them are/is not liable to pay anything over and above the 'sale price' of Rs,106,127,000/- to the Plaintiffs Bank. The charging of any mark-up under the Agreement of Financing dated 21.09.2006 [Annexure 'D' to the Plaint] is also 'haram' as such not payable. Per Mr. Lakhani, the only amount which is due and payable by the Defendants to the Plaintiff Bank is in the sum of Rs,42,584,848/- and nothing beyond that amount. Lastly, learned counsel for the Defendants including Defendant No,9 argued that the Defendant No,9 has been dragged in the above suit unnecessarily as the Defendant No,9, has never mortgaged its property located at Mouza Tarra, Tehsil, District Lahore, measuring 106 Kanals with Plaintiff Bank against the liabilities of Defendants Nos.1 to 8, if any. Finally, learned counsel contended that since the Defendant No,9 has not signed an MoDoT Deeds as such the Defendant No,9, deserves to be granted un-conditional 'leave to defend' the suit. Against other Defendants, the suit is liable to be dismissed except for the amount as per 'interim decree' passed on 14.12.2010. 17. In support of his contention, Mr. Lakhani, learned counsel for the Defendants, placed reliance on the following case-laws:- a. 2003 CLD 1007 b. 2002 CLD 702 c. 2012 CLD 961 18. The relevant portions of the aforesaid case-laws relied upon by Mr. Lakhani, learned counsel for the Defendants read as follows:- a] Habib Bank Limited v. Al-Jalal Textile Mills Ltd. [2003 CLD 1007]. "The definition of 'finance' is almost the same in both the laws except for addition of a few more transactions. The Word 'obligation' has been introduced in the present Ordinance of 2001 and has been defined and has been reproduced hereinabove. It is clear, from the word 'obligation' that it only refers to the enlargement and extension of a time. It is not provided in the definition of
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obligation that restructuring or renewals would be an increase in the amount payable on the date of it being restructured, renewed or rescheduled. The question is that the Meaning has to be given in light of the existing law. For as extensive analysis, we need to look at the Act of 1997. The said Act provided for levy of interest on loan. The term 'loan' has been done away with. Loan under the Act of 1997 is defined as "(f)" 'loan' means a loan, advance and credit under the system based on interest and includes..." Doing away with the term 'loan' means that the system based on interest has also been done away with. The new law thus seems to be a consequence of the judgment by the Honourable, Shariat Appellate Bench of the Supreme Court of Pakistan in the case of Dr. M. Aslam Khaki v. Syed Muhammad Hashmi (PLD 2000 SC 225). In that case they have held that all laws are to be brought in conjunction with the Islam and Sunnah. Naturally, the law being introduced now is and ought to have been in consequence with the Dr. Aslam Khaki's case. It will be seen that in that judgment it has been held that mark-up on the repurchase, purchaser cannot be allowed, being against the Injunction of Islam. It was held as under:- "Let us now analyse each one of these transactions separately. The first transaction mentioned in sub-clause (1) is that of mark-up in price. What is meant by this term is the transaction of Murabaha or 'Bai Mualial', the details of which have been explained in paras. Above as well as in paras. 189 and 218 of judgment of Mr. Justice Muhammad Taqi Usmani. It has been mentioned there that this technique was suggested by the Council of Islamic Ideology but was distorted to the worst extent by the banks when they applied it in practical terms. The learned Federal Shari at Court, therefore, observed that "mark-up system, as in vogue, is held to be repugnant to the. Injunctions of Islam" (para. 262 of the judgment of the FSC) and consequently, it ordered that the word "mark-up" be deleted from this sub-clause. We have already held that although the mark-up system as in vogue in our banks is repugnant, to the Injunction of Islam; yet it is not correct to assert that the transaction of Murabaha or Bai in itself is prohibited. If the transaction fulfils the necessary conditions spelled out above, it cannot be held repugnant to the Injunction of Islam. But the reference of this transaction in this clause, in the context of a return on a promissory note or a bill of exchange in not according to the basic principles of a Murabaha transaction. The reason is that Murabaha or Bai 'Mu'lial is a transaction of sale effected on the basis of deferred payment. One of the basic conditions of this transaction, like any other sale, is that the price is fixed at the time of the original contract of sale. This price may include a margin of mark-up (profit) added on the cost incurred by the seller. To determine the amount of mark-up, the seller may take different factors into consideration, including the deferred payment, but as already explained once the price is fixed, it…
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